Emerging markets keep rolling; Slovenia on the road with €1 billion; LatAm corporates stumble

By Aaron Hochman-Zimmerman

New York, Jan. 28 - Emerging markets kept their strong pace on Wednesday as the market continued to react positively to the news coming from Washington, D.C.

Earnings on Wall Street also largely stayed to the sunny side of expectation, and U.S. equities kept the tone healthy.

In the primary, Slovenia began making its case for its own €1 billion medium-term offering, while in trading issues were nearly up across the board.

Russia continued to recover from its ruble trouble as its bonds due 2030 added 0.75 point to 94 bid.

Still, the day was not perfect.

As a category, Latin American corporates were in a difficult place as Brazil's Independencia SA's tender offer found detractors and Mexico's Vitro SAB de CV may be forced to default.

Meanwhile, on the back of resolutely strong equities, volatility opened low and ended down by 2.59 at 39.66, according to the VIX index. The index is a frequently used yardstick of market volatility.

Emerging Europe awaits supply

Emerging Europe, which lagged the other sectors in 2009 issuance, continued to see issuers press the market to buy more high-grade paper.

Slovenia opened its roadshow for a €1 billion three- to five-year issue, which is expected to come in the first quarter (Aa2/AA/AA).

The issue will likely be followed by a second €1 billion bond in the second or third quarter, the Finance Ministry said.

Another €800 million in local issuance will likely be placed throughout 2009.

Societe Generale, JPMorgan and UniCredit Banka were expected to act as bookrunners when the deal was announced in December.

Meanwhile, Russia's foreign minister, Sergei Lavrov, told reporters that a gathering of the BRIC countries is scheduled for sometime this summer in Sao Paulo, according to the Itar-Tass News Agency.

Lavrov described the planned meetings as "a full-scale summit," the report said.

Meanwhile, Russia reportedly postponed the deployment of short-range Iskander missiles to the Baltic Coast region of Kaliningrad as it begins its relationship with president Barack Obama's administration.

Russia issued denials of any intention to station missile batteries in the region, which sits on the northwest border of Poland.

For their part, Poland and the Czech Republic have come under the criticism of Moscow after allowing the United States to construct pieces of its missile defense shield within their borders.

The Russian government bonds due 2030 added 0.75 point to 94 bid.

Also in emerging Europe, Turkey's central bank governor, Durmus Yilmaz, said the currently proposed loan package from the International Monetary Fund may be enough to allow the bank to cut interest rates, according to the Hurriyet Daily News.

"[The $25 billion] that will come from the IMF may soften tightening credit conditions and bring further interest rate cuts," Yilmaz said at the economic forum in Davos, Switzerland.

Yilmaz also said that it is premature to revise the country's inflation outlook from its current estimate of 7.5% for 2009, the report said.

The lira was seen trading at 1.6182 to the dollar.

The Turkish sovereign bonds due 2030 were quoted at 143.25 bid.

LatAm corps shake market

Brazil's state-run oil firm Petrobras decided to forego debt issuance for the time being, reports said.

"I think they could've come," a strategist said, calling the reluctance to bring a deal "a bit of a surprise."

"It must have been a price issue," the strategist said.

Also in Brazil, mixed opinions came in about Independencia, which announced a consent solicitation tender offer for its 9 7/8% notes due 2015 and 9 7/8% notes due 2017 on Jan. 21.

Some have said 'it's going great,' the strategist said, adding: "it's giving up an awful lot of upside."

The company hopes to tender $225 million from the notes due 2017 and $300 million from the notes due 2015, but "they want to pay 3 points to walk away ... How could a company really do that?" the strategist asked.

"You would give up all the upside on change of control" with a put at 101 and "there are rumors of M&A activity," the strategist said.

Both bonds were seen trading near the consent level of 66 bid.

The tender offer ends on Feb. 3.

Elsewhere, the 11% Brazilian sovereign bonds due 2040 were quoted at 126.5 bid.

Also, Mexico glass producer Vitro SAB de CV teetered on the brink of default as it asked its bondholders to restructure its outstanding debt.

"I don't think they're going to pay their interest payment," the strategist said about a $45 million payment due Feb. 1.

LatAm sovereigns strengthen

On the sovereign side, Latin America traded slightly better with the help of a strong tailwind from U.S. equities.

Still, two U.S. high-yield corporate deals provided a more optimistic sign for the sector.

Inergy (B1/B+/) priced at 11% and Chesapeake Energy (Ba3/BB/) priced at 10 5/8%, he said. "It's pretty impressive."

The relative value [between Latin American high yield and U.S. high yield] is tightening a little," he said.

Elsewhere in Argentina, farm leaders stormed out of a meeting with agriculture secretary Carlos Cheppi, according to the Buenos Aires Herald.

The leaders claimed they walked out of the meeting, which was scheduled to deal with drought conditions in much of the country's farmland, as a result of the meeting's "strictly technical character," the report said.

If the government does not do more to protect farmers, boycotts of taxes and goods sales may resume, the farm leaders said.

"It'll be interesting to see how that affects pricing," a strategist said, particularly in the beef sector.

The effects will be more obvious in March and April, but "it's very serious," the strategist said.

The 8.28% Argentine discount bonds due 2033 tacked on 0.3 point to 35.8 bid.

Also, Venezuela's 9¼% government bonds due 2027 added 1 point to 53 bid.

Asia trades on holiday volumes

Asia continued to be quiet and calm as the Chinese New Year drew attention away from the market for another day.

Amid the light action, investors anticipated more information about Indonesia's new issue.

Some have suggested that the sukuk, which was announced on Tuesday, may be limited to the local market.

The issue is expected to be a three-year Islamic bond with a yield in the range of 10½% to 11.2%.

No banks have been mentioned in connection with the offer, which is scheduled to price on Feb. 20.

Also, in the Philippines, a Makati Business Club survey determined that the worst of the financial crisis would hit the Philippines in 2009, the Manila Times reported.

As many as 93% of the responders said their businesses would be hurt by the crisis. And 29% said it will do "substantial" damage to business, the report said.

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